THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

LOU DOBBS, CNN ANCHOR: Wolf, thank you. Good evening, everybody. Tonight a stunning political victory for Hamas and the Palestinian elections but it appears those most stunned are those who should have the best understanding of what would happen, U.S. and Israeli intelligence agencies. We'll take a close look at the ramifications of the Hamas victory.

Also, the United Nations is in the grip of a culture of corruption, mismanagement, and incompetence, as the world faces imminent dangerous new threats. The U.S. ambassador to the United Nations, John Bolton, joins us here tonight.

And Google's decision to put profits before democratic values in communist China. My guest tonight, the congressman who's calling for congressional hearings on Google's sellout to the communist Chinese.

All of that and more ahead.

We begin with a surprising decisive Hamas victory in the Palestinian elections. Hamas is committed to the destruction of Israel, and no western or Israeli intelligence agency or diplomat foresaw its victory today. The president declared the United States will not talk with Hamas as long as Hamas wants to destroy Israel.

Dana Bash reports from the White House -- Dana.

DANA BASH, CNN CORRESPONDENT: Well, Lou, the president chose his words very carefully when asked about that stunning Hamas victory. He urged the Palestinian prime minister, Mahmoud Abbas, the leader of the now defeated Fatah faction, to stay in office as long as he can, at least until the new Palestinian government is formed.

(BEGIN VIDEOTAPE)

BASH (voice-over): Just hours after Palestinians overwhelmingly elected a group he calls terrorists, President Bush insisted the prospect of Mideast peace is not dead but Hamas must renounce violence. GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: A political party that articulates the destruction of Israel as part of its platform is a party with which we will not deal.

BASH: Spreading democracy is a key Bush goal. So he tried to put the best face on unwelcome results, deeming them a wake-up call to the Palestinian leadership.

BUSH: When you give people the vote, you give people a chance to express themselves at the polls. They -- and if they're unhappy with the status quo, they'll let you know.

BASH: The Hamas gains are the latest challenge to a president starting his sixth year in office facing questions about his political strengths and looking to regain his footing with next week's State of the Union address.

BUSH: We had lawyers look at it.

BASH: But the primary goal of this spirited 46-minute news conference was to continue defending his controversial program allowing domestic spying without a warrant.

BUSH: The program's legal.

BASH: And for the first time, he suggested, he may fight growing calls from Congress to formally approve or modify the surveillance program.

BUSH: My concern has always been that, in an attempt to try to pass a law on something that's already legal, we'll show the enemy what we're doing.

BASH: The idea for broader surveillance authority, Mr. Bush said, was a post-9/11 request from the eavesdropping agency itself.

BUSH: It wasn't designed in the White House. It was designed where you'd expect it to be designed, in the NSA.

BASH: He was less forthcoming about White House ties to lobbyist Jack Abramoff, who pleaded guilt to corruption.

BUSH: Having my picture taken with someone doesn't mean that, you know, I'm a friend with him or know him very well. I've had my picture taken with you.

BASH: Refusing to release not only photos taken together at the White House but also details of which aides Abramoff met with over the years and why, suggesting that might somehow undermine the investigation.

(END VIDEOTAPE)

BASH: The president also said he was going to refuse to release additional internal White House documents from the days before and after Hurricane Katrina. Congress is asking for that. He cited an argument we've heard many times from this White House, Lou. And that is, he believes it would have a, quote, "chilling effect" on the quality of advice that he gets -- Lou.

DOBBS: A lot of concern about the quality of the advice. Why not transparency and full disclosure about meetings between Jack Abramoff and any official at the White House?

BASH: Well, I was one of a few reporters at the White House here who tried to ask those questions of the president today. He was quite stuck on that quip you just heard in the piece about the photographs, that he takes photographs with a lot of people. He doesn't remember him.

But to that question, what kind of meetings did his staffers have, under what circumstances, what did they talk about? He punted. He said that it's an ongoing investigation. That's also something we hear many times from this White House.

DOBBS: Dana, thank you very much. Dana Bash.

The Hamas victory comes one year after President Bush declared freedom has the power to transform the entire Middle East. Last year, President Bush insisted that democracy will end tyranny in the region, but the Hamas victory raises serious questions about the Bush doctrine. Bill Schneider reports.

(BEGIN VIDEOTAPE)

BUSH: Growth of democratic...

BILL SCHNEIDER, CNN POLITICAL ANALYST (voice-over): Here's Bush doctrine as President Bush stated it a year ago in his second inaugural address.

BUSH: So it is the policy of the United States to seek and support the growth of democratic movements and institutions in every nation and culture.

SCHNEIDER: So what does President Bush make of Wednesday's Palestinian election?

BUSH: Democracy is -- can open you want world's eyes to reality by listening to people.

SCHNEIDER: The reality is that the Palestinians voted for a radical Islamist political movement that the United States, Europe, and Israel have labeled a terrorist organization. President Bush has to argue that Palestinians were not actually voting for terrorism. They were voting for change.

BUSH: I'm not surprised that people say let's get rid of corruption. If government hadn't been responsive, I'm not the least surprised if people say, "I want government to be responsive."

SCHNEIDER: Americans vote against the status quo all the time. Apparently, so do Palestinians. UNIDENTIFIED MALE (through translator): Hamas government should first of all put an end to unemployment and then do something about the high prices of food and fuel.

SCHNEIDER: Are Palestinians really willing to destroy the peace process and provoke the United States in order to get better government? The way out, President Bush insists, is for Hamas to renounce extremism. We expect that to happen when a radical party assumes the responsibility of civil government.

BUSH: I've made it very clear that -- that the United States does not support political parties that want to destroy our ally, Israel. And that people must renounce that part of their platform.

(END VIDEOTAPE)

SCHNEIDER: For the Bush doctrine to work, it's not enough just to hold an election. The winners must accept the rules of democracy and abandon extremism. That's true for the Palestinian Authority, and it's also true for Iraq -- Lou.

DOBBS: Indeed. And Bill Schneider, it is stunning that the United States and European governments and the Israeli government were stunned by this landslide victory by Hamas. Why so?

SCHNEIDER: Why so, because they -- all the pre-election polls had indicated Hamas would do well, not this well. I think they were not prepared for this.

And there's now a battle going on over interpreting it. You heard the president say he thought it was a vote against the status quo. Well, one candidate, a former Israeli prime minister, Bibi Netanyahu, who's running again for prime minister, has said he thinks that the Palestinians were voting for terrorism. They were voting to reward terrorism because a lot of Palestinians, in his view, believe that's what led the Israelis to withdraw from the Gaza.

DOBBS: Of course, Netanyahu was opposed to Prime Minister Sharon's decision to withdraw the settlements, and he is also perhaps no better qualified, having not anticipated the Hamas victory himself.

SCHNEIDER: That's right.

DOBBS: Bill Schneider, thank you very much.

In Iraq, insurgents have killed two more of our soldiers in separate attacks. One soldier was killed near Ramadi in a rocket attack. The other soldier killed by a roadside bomb south of Baghdad. Two thousand, two hundred thirty-eight of our troops have now been killed in Iraq since the war began nearly three years ago.

The top U.S. general in Iraq, General George Casey, today acknowledged that our forces in Iraq are stretched. But General Casey insisted his troops will accomplish their mission. Yesterday, a Pentagon commission report said our military simply does not have sufficient troops to defeat the insurgency. Jamie McIntyre reports from the Pentagon.

(BEGIN VIDEOTAPE)

JAMIE MCINTYRE, CNN CORRESPONDENT (voice-over): That the wars in Iraq and Afghanistan have put a great strain on the American military is no secret. And not really something most U.S. commanders would dispute. That includes George Casey, the top U.S. general in Iraq, who was asked Thursday about a Pentagon study released this week suggesting the U.S. Army might be overextended.

"The forces are stretched. I don't think there's any question about that," Casey responded. But then quickly added, "They are doing an excellent job, and they are certainly accomplishing their mission."

Asked about Casey's assessment, his boss, the commander in chief also insisted the U.S. military has enough troops to ensure victory in Iraq and still fight somewhere else if necessary.

BUSH: The question is, whether or not we can win victory in Iraq. Our troops will have what -- our command, will have the troops necessary to do that. The question is, can we help keep the peace in a place like the Far East? Absolutely.

MCINTYRE: It may sound like a contradiction, that the U.S. military could be stretched and still ready. But the Pentagon argues that's to be expected in war.

DONALD RUMSFELD, SECRETARY OF DEFENSE: There's no question but that if a country is in a conflict, and we are, in the global war on terror, that it requires our forces to do something other than what they do in peace time.

(END VIDEOTAPE)

MCINTYRE: Still, General Casey's admission that his troops are stretched, prompted the U.S. military in Iraq to issue an unusual clarification. It noted that General Casey does believe that the U.S. Army can sustain its effort in Iraq for a long time. And it said that his stretched description referred to the Army in general, not U.S. troops in Iraq in particular -- Lou.

DOBBS: Jamie, this is one of those points where it is beginning to look as though politics are seeping throughout the Pentagon. It is no secret that we are having to rotate troops.

We're having to pay extraordinary historically high bonuses to retain our troops in uniform. And we're having very difficult times in meeting recruiting goals while our troops are under tremendous strain.

Why is there even an equivocation on the part of the secretary of defense or any other member of the Pentagon as to the strain that we're putting on our troops?

MCINTYRE: Well, you know, Lou, this issue is going to continue to explode as soon as the budget hits Capitol Hill. Because in that budget are plans to scale back ambitious goals to expand the National Guard and the reserve below the authorized end strength.

And already members of Congress are asking if the Pentagon simply can't recruit enough people or if they're not willing to spend the money because they want to spend it on weapons. So you can expect that there are going to be a lot of fireworks when this budget hits Capitol Hill next month.

DOBBS: Well, unfortunately, our men and women in uniform in Iraq and Afghanistan are undergoing fireworks of an entirely different nature. And it is -- let us put it this way, not seemly that politics should be playing such a strong role when our men and women are in harm's way.

Jamie McIntyre from the Pentagon, thank you.

Turning now to our poll. Our question of the evening is, do you believe that the failure of U.S. intelligence to anticipate a Hamas victory is another indication that our intelligence system is in need of further overhaul?

Still ahead, call it the Ritz of border tunnels. One of the most sophisticated, state of the art border tunnels ever found. And we've got the video. Look at it if you would, please, Mr. Secretary, Michael Chertoff.

And the Mexican government says it may be an American conspiracy. Mexico's latest effort to explain the way its military border incursions.

And defeating the culture of corruption at the United Nations. The U.S. ambassador to the United Nations, John Bolton, is our special guest, coming up here.

(COMMERCIAL BREAK)

DOBBS: Tonight, homeland security officials say they have shut down the largest border tunnel ever discovered on the U.S.-Mexican border. Border officials say they've never seen anything quite like this tunnel linking Otay Mesa, California, with an industrial neighborhood near the airport in Tijuana, Mexico.

This tunnel not only has electricity, but a ventilation system. It's almost a half mile in length, 75 feet deep. And it's lined with concrete. Police were first tipped off to it two years ago. They finally found it, using ground penetrating radar. How about that idea?

And inside the tunnel, officials found an estimated two tons of marijuana. Officials are not ruling out the possibility that this tunnel may have also been used -- get ready -- to smuggle illegal aliens into the United States.

Since September 2001, law enforcement officials have discovered some 21 cross border tunnels on the Arizona and California border with Mexico. DEA agents say these tunnels are proof that drug dealers are getting desperate as border patrols heat up above ground.

Also tonight, the Mexican government says it's dropping plans to distribute those border maps to its citizens after a backlash in this country, as we've reported here. These maps show the easiest way for Mexican citizens to enter the United States illegally.

Mexico's reasoning for its quick about-face on this is simply priceless. The government of Mexico says it doesn't want to tip off the border patrol and the Minuteman volunteers about where illegal aliens are likely to cross into the United States.

Mexico tonight also can't seem to get its story straight about its military incursions into this country. The incursions that our Homeland Security Department aren't concerned about, by the way.

These military incursions are a complete violation of our national sovereignty, and the Mexican government can't bring itself to even admit that they're taking place. Christine Romans has the story.

(BEGIN VIDEOTAPE)

CHRISTINE ROMANS, CNN CORRESPONDENT (voice-over): Mexico denies that armed members of its military have been crossing into the United States. At issue, a bold incursion Monday. Men dressed in Mexican military gear in military vehicles intervened it help Mexican drug smugglers, engaging U.S. law enforcement on American soil.

The Mexican ambassador to the U.S.

CARLOS DE ICAZA, MEXICAN AMBASSADOR: We have a long, long border. And sometimes American soldiers or Mexican soldiers just cross a little because the demarcation may not be clear or whatever. But this incident does not involve Mexican military personnel.

ROMANS: From the counsel general in El Paso, a pointed denial.

JUAN CARLOS FONCERRADA BERUMAN, COUNSEL GENERAL OF MEXICO: We totally reject any kind of assumption that pertain to involve the Mexican army in these incidents.

ROMANS: Then Mexico's top diplomat went further, telling the Associated Press, U.S. troops, quote, "disguised as Mexican soldiers with Humvees might have been protecting the drug smugglers."

REP. TOM TANCREDO (R), COLORADO: There have been over 250 incursions into this country in the last 10 years. And I mean incursions by members of the Mexican military or federal police. That's when someone has come into this country purposely, not by accident. It is a very dangerous situation. They're armed. They have in the past fired shots.

ROMANS: The U.S. ambassador to Mexico, Antonio Garza, denounced rampant border violence. Quote, "the continuing flow of undocumented migrants entering from Mexico, the increasing attacks against U.S. law enforcement officials from the Mexican side of the border, the public Mexican rhetoric describing U.S. efforts to control its borders as racist, and efforts by Mexico to promote regional opposition to measures under consideration in the U.S. Congress, only serve to further polarize the debate on immigration."

(END VIDEOTAPE)

ROMANS: And how does Mexico respond to that? Its foreign secretary told reporters, his country will send a diplomatic note to Secretary of State Condoleezza Rice. He demands the U.S. officials tone down their language when it comes to Mexican border security and immigration violations -- Lou.

DOBBS: The Mexican government has reached a breathtaking level of audacity, incompetence and apparent delusion. The suggestion that U.S. troops were dressed as Mexican troops, I mean is there no end? Is there no shame on the part of this incompetent and corrupt government?

ROMANS: He says there's no evidence that those were Mexican citizens involved in that incursion on Monday. He thinks it could just as well be possible it was U.S. troops dressed up as Mexican troops as Mexican -- as drug smugglers dress up as Mexican troops.

DOBBS: The question has to be, why is the White House silent on this issue? Why is the man in charge of our homeland security, that is Homeland Security Department Secretary Michael Chertoff, so timid and so unconcerned or interested?

ROMANS: Some 200 incursions since 1996, according to border patrol statistics, at least 200 incursions. This has been happening a long time.

DOBBS: It is a remarkable situation. It is -- it's ineffable. There is no way in which you can express the absurdity of the situation and the lack of a response by this government. Christine Romans, thank you.

Still ahead here, we'll be taking a look at your thoughts.

Also, middle-class autoworkers looking for help from the White House, forget about it. We'll tell you what President Bush had to say on to the automobile industry in this country. And by the way, I'll give you a hint. It's another insult to add to the injury.

And I'll be talking with a congressman who is ordering Google executives to Capitol Hill for hearings to explain their shocking collaboration with the Chinese communist government, nest.

(COMMERCIAL BREAK)

DOBBS: A new opinion poll shows first lady Laura Bush with overwhelming public support. But voters are uncertain that either Senator Hillary Clinton or Secretary of State Condoleezza Rice would be good presidential candidates, should they decide to run.

The CNN/Gallup/"USA Today" poll shows an astonishing 80 percent of Americans believe the first lady is doing a good job. The first lady's approval rating is double the poll numbers for the president, whose rating remains stuck at just over 40 percent.

Meanwhile, only 16 percent of voters say they would definitely vote for Senator Clinton, should she decide to run for the White House in 2008. Voters are equally uncertain about Condoleezza Rice. Just 14 percent say they would vote for her in a presidential election.

Neither Senator Clinton nor Secretary of State Rice, of course, have decided that they will run. Both claim that they, in fact, are not running.

Taking a look now at some of your thoughts. Dale in Oregon: "Remember the adage, be careful what you wish for, you may get it? A democracy in the Middle East with terrorists at the helm. If that doesn't shiver your timbers, nothing will."

Caleb in Georgia: "George Bush went to war in Iraq just by hearsay about weapons of mass destruction. But we have pictures of the Mexican army coming across our border, and all this administration can say is, 'It's under review'?"

Don in Alabama: "Lou, I'm surprised that George Bush hasn't proposed that we hire illegal aliens to protect our borders."

And Harry in Arkansas: "Lou, if Mexican President Vicente Fox is upset over the prospect of our construction of a 2,000-mile wall between our countries, he must know that it will work and we should know that we will finally be doing something right."

Enrique in San Diego: "Lou, when you look up ugly American in the dictionary, there's you. Your lies and racist comments are outrageous. The map you mentioned is by Humane Borders, a U.S. 501-C3 from Arizona. Your racist rhetoric and continuous fictional stories will be your doom. I promise you, CNN will dump you, as the truth will set you free."

Well, Enrique, the maps met their doom first.

We love hearing your thoughts. Send them to us at loudobbs.com.

Still ahead here, first the automobile industry. Now the Bush administration. Why no one is helping tens of thousands of middle- class auto workers who've lost their jobs and soon will.

And U.S. ambassador to the United Nations, John Bolton, on his continuing efforts to end the culture of corruption at the United Nations. He's our guest here, coming up.

(COMMERCIAL BREAK)

DOBBS: Still ahead here, the latest on Google hearings on Capitol Hill on the sellout by Google to the communist Chinese government. But first a look at the hour's top stories.

The full Senate will take its final vote on the nomination of Supreme Court justice nominee Judge Samuel Alito Tuesday morning. Senator John Kerry tonight saying he will try to launch a Democratic filibuster against the Alito nomination.

President Bush saying at a news conference today, there is no doubt that the NSA warrantless wiretap program is legal. The president says he will resist any efforts by Congress to stop it.

And growing alarm tonight in Israel after the stunning landslide victory of Hamas in the Palestinian general elections. Hamas is the Palestinian group bent on destroying Israel.

Joining me now with their -- her thoughts on why the mainstream Palestinian candidates were defeated by radical Islamists extremists, Samar Assad, the executive director of the Palestine Center.

Samar, it is good to have you with us.

Were you surprised by the landslide victory of Hamas, as were so many western governments including the United States?

SAMAR ASSAD, EXECUTIVE DIRECTOR, PALESTINE CENTER: I actually was surprised. I did not think that would continue to hold on its -- on the majority that it enjoyed in the current legislative council.

I thought that both Hamas and Fatah would be very close in the number of seats that they were going to win, but I did not think that Hamas will get a large number of seats that it actually did.

However, it's obvious that the Palestinian people felt that there is a need for change. And expect that with that change there will be an improvement in their daily lives and an improvement in the Palestinian negotiating position. Now, if that will happen, we will have to wait and see.

Either way, this is a result. The wins and losses of yesterday is a result of the Democratic process. That everybody needs to respect and deal with right now.

DOBBS: And those who'll have to deal with it first, obviously, are Fatah, the Palestinian organization itself. Are you prepared to work together with an organization that is absolutely committed to the destruction of Israel and is the leading terrorist organization?

ASSAD: Well, I think that the Fatah movement has said that it's not going to join a Hamas-led government. The Fatah movement has said it respects the choice of the Palestinian people.

They said that they will hand over all cabinet positions to Hamas, and let Hamas deal with the realities on the ground, mainly Israel's occupation and control of Palestinian lives. And sooner or later, Hamas will have to deal with those realities.

DOBBS: One the realities is President Bush today saying that this country will not deal with Hamas so long as it does not disavow terrorism and its commitment to the destruction of Israel. What does that portend in your judgment?

ASSAD: Well, I mean, it's important, I think, to note that Israel and the United States played a major role in Hamas' victory. Israel has worked -- constantly worked hard to undermine president Abbas and his government, the Fatah-led government, through unilateral acts, dictates and creating facts on the ground. And the United States at many times allowed that to happen. So this is a result of that. So ...

DOBBS: So you don't blame the corruption of Fatah ...

ASSAD: No, no, definitely.

DOBBS: ... or its mismanagement in anyway in this election? You put it squarely on Israel.

ASSAD: No.

DOBBS: My question was very straightforward. What will happen if Hamas continues its commitment to terrorism and its vowed mission of destroying Israel?

ASSAD: Well, I think, obviously, that Hamas will at one point have to change its position because there -- again, there are realities on ground that would force them to change their position. And that is that Israel exists, that there's a need to negotiate with Israel. Now they might change the message -- the principles of the negotiations and what they bring to the table.

But the fact remains that at one point they would need to moderate their position and they would need to realize that in the best interest of the Palestinian people, which the majority of them believe in a two-state solution and to be achieved through a negotiated settlement, that you would need to do that with Israel.

DOBBS: Samar Assad, we thank you very much for being here.

ASSAD: Thank you.

DOBBS: Turning now to the war on the middle class in this country, the 60,000 American auto workers losing their jobs over the next three years don't appear to be a concern for this White House.

In fact, Labor Secretary Elaine Chao says American workers are simply suffering from what she called a skills gap. Adding to the insult, President Bush is telling auto makers not to expect any help from his administration. Bill Tucker reports.

(BEGIN VIDEOTAPE)

BILL TUCKER, CNN CORRESPONDENT (voice-over): Is the future of the American auto worker and the economy moving from this to this? U.S. Labor Secretary Chao seems to think so, as she talks about need to retrain auto workers into careers of the future, jobs that can't be outsourced overseas to India or China.

The administration apparently unconcerned that Ford and GM will be putting 60,000 middle class workers out of a job. The news not prompting any change in policy to protect the auto industry or its workers.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We live in a competitive world, and so policies must be put in place to recognize the competition of the global economy and prepare our people to be able to continue to compete so America can continue to lead.

TUCKER: But it's an unfair competition. Germany and Japan have protected their industries, while American companies have pursued the lowest cost labor at whatever the cost.

ROSS EISENBREY, ECONOMIC POLICY INSTITUTE: We've lost 177,000 jobs in the motor vehicle industry since George Bush took office. And, obviously, most of those are parts jobs. More of them are parts than in assembly plants. So the trend is a serious trend for American workers.

TUCKER: Simply put, there is more at stake than just the auto.

JACK DAVIS, MANUFACTURER: We're quickly running out of jobs for the middle class workers to do. What are we going to do with these people if we're not making the shoes, the socks, the underwear, the clothes, the fabrics, the steel, the rubber? What are we going to do with these people?

TUCKER (on camera): Frequently what is lost in all of this discussion about what's next, is what's happened over the last 30 years to workers' paychecks. Real wages have fallen.

Bill Tucker, CNN, New York.

(END VIDEOTAPE)

DOBBS: We're taking a closer look tonight at yet another complete U.S. policy failure, this time Communist China. Years of U.S. neglect has helped transform the Chinese military into one the world's most formidable military powers.

Joining me now to discuss the challenge posed by China, Gordon Chang -- he's the author of "The Coming Collapse of China"; and Professor Arthur Waldron, the chairman of international relations at the University of Pennsylvania; and Richard Fisher, vice president of the International Assessment & Strategy Center. Good to have you all with us.

Gordon, let me begin with you. In terms of the Middle East, China's role in the Middle East and what has transpired today with Hamas? GORDON CHANG, "THE COMING COLLAPSE OF CHINA": Well, China supports Iran, and Iran supports Hamas. We don't really need to know too much about Chinese policy towards Hamas.

We can see that China is sponsoring those countries that are sponsoring problems. Of course, China wants Iran's energy, and that's understandable. But nonetheless, it's engaging in irresponsible behavior, which has an affect throughout the world.

DOBBS: To what degree is China actually -- are they involved in supplying arms?

ARTHUR WALDRON, PROF., UNIV. OF PENNSYLVANIA: Well, they are certainly supplying arms to Iran, missiles and so forth. Rick knows more about that than I do, but they're deeply involved. Of course, the Islamic bomb, the Pakistani bomb, has a very, very large Chinese component.

So they're in a kind of a contradictory situation where on the one hand, they -- of course, the relationship with the United States is most important. But on the other hand, they feel that it is to their advantage to work with some these rogue states.

DOBBS: Richard Fisher, to what degree is China a destabilizing influence in a highly unstable area that is the Middle East?

RICHARD FISHER, INTL. ASSESSMENT & STRATEGY CNTR.: It's very much a destabilizing influence. As Gordon pointed out, it is protecting Iran. It has supplied Iran with nuclear technology, missile technology.

It's supplied Saudi Arabia with missiles and possibly nuclear systems as well. It has also sold missile technology to Turkey. It uses strategic exports of dangerous weapons to achieve or to set relations with elites that advance its goal of undermining American influence.

DOBBS: Rick, what is the reason the United States is not dealing with the fundamental realities and the troubling realities that you've just articulated? Why is this administration not being both straightforward, vocal, and responsive to what you're saying?

FISHER: Well, the realities of the challenge are simply very daunting. The United States is tied down in a protracted conflict in Iraq. We're making progress in Iraq, but it's taking a long time. We simply don't have the military force to spar -- the conventional military force to spare -- to take on Iran in a way that could be decisive in terminating its nuclear ambitions.

And if we did so, we also do not have the capacity to withstand the reaction, internationally, in terms of how oil prices will be affected. It's simply very daunting.

DOBBS: Daunting, as Richard Fisher says, Gordon, what -- what is, then -- what are, then, the policy options for the United States in terms of China? GORDON: Well, the stability of the Communist Chinese state depends on prosperity. And that prosperity, in large part, depends on access to American markets. Now for various reasons, because we have this policy of engagement in China, we have not wanted to use our leverage, because we want to peacefully integrate China into a world system.

But unfortunately, our policies are not really modifying Chinese behavior to the extent that they should. And we're not changing our policies. So I think it's, in a large sense, a failure for us to adjust to what's actually happening.

DOBBS: Failing to adjust. Arthur, what should that adjustment be in U.S. diplomacy in terms of its strategy?

WALDRON: Well, I think the main thing we have to recognize is that China, although a major trading partner dependent on us, is configuring a military that's clearly designed it attack or to resist ours. They're developing an anti-carrier missile capability that can only be aimed at us.

They're getting a lot of this from the Russians. They -- we should really try to cut that off. We should stop sales of dual use technology. We can come down a lot harder in this. There are times in diplomacy when the 2x4 is very important.

DOBBS: Is this administration capable of the 2x4 in the relationships with Russia and China?

WALDRON: Well, I think that the administration is overstretched. There is contradiction within it, but I do believe that leadership elicits a response.

DOBBS: Thank you very much, Arthur Waldron.

WALDRON: Thank you.

DOBBS: Gordon Chang, Richard Fisher in Washington, thank you.

Still ahead here, Google aiding and abetting the Communist Chinese government in the censorship with its own people. One Congressman demanding an investigation now. He's our guest here next.

And then the culture of corruption at the United Nations. Ambassador John Bolton who is leading the effort to reform the United Nations will be our guest. Stay with us.

(COMMERCIAL BREAK)

DOBBS: Congress will hold hearings next month into Google's complete sellout to the Communist Chinese government. Google executives said this week that the company will design a new search engine especially for China that will censor topics the Chinese government does not want its citizens to read. And that Web site launched this week. Congressman Chris Smith is the chairman of the House Global Human Rights Subcommittee and he called for those hearings, and joins us here tonight. Congressman, thanks for being here.

REP, CHRIS SMITH (R), NEW JERSEY: Lou, thank you very much for having me on.

DOBBS: First, can you believe that a U.S. company would literally sell out Democratic principles in order to do business anywhere?

SMITH: Well, I'm dismayed and disappointed but frankly I'm not shocked. It is part of an ongoing capitulation in the naive belief that if we just trade and curry favor with the dictatorship that somehow they will matriculate from dictatorship to democracy, since MFN and since Bill Clinton renewed MFN in the early 1990s, there has been...

DOBBS: Most favored nation.

SMITH: ... Most favored nation station. There has been no move towards democracy. Radio Free Asia continues to be suppressed. Torture is endemic and now we see Yahoo! and others actually creating an unseemly partnership with police state. The police now make them part of their efforts to go after the human rights activists and the religious freedom activists in China and now Google's doing too.

DOBBS: And the media and news censorship and absolute constraint of freedom of expression in China. Arthur Waldron just said here, one of the foremost experts on China that 10 years ago the arrogance of the United States was that China would become more like us.

Our leading corporate executives thought that. Our politicians, in both parties. His great fear is that we're becoming more like them because we're being corrupted as we seek dollars in the Chinese market. Is that your judgment?

SMITH: Unfortunately, the evidence suggests that. It's a very provocative question. There are some good people but they don't seem to see the forest from the trees at this dictatorship and the balance of trade is $185 billion. Yes?

DOBBS: You know that there are millions of people out there that are Internet libertarians that are going to be shocked, first of all, that you're Republican, a party that has been extraordinary supportive, both parties have been.

But the Republicans perhaps more enthusiastic for U.S. multinationals. Saying that any kind of interference, and this is sort of absurd cycle that we're in of reasoning, any government interference with an Internet firm, like Google, is against their libertarian instincts, even though it is Google that is defeating Democratic principles and seeking savoir with the Communist Chinese.

SMITH: Well that's very well put. Unfortunately, again it appears very strongly that they're putting profits over principle. And we're not asking Google or Yahoo! or anybody else to promote democracy, just don't partner with repression.

Don't become part of the apparatus that suppresses and keeps freedom of thought. And especially don't be a part of the effort to put people behind bars and there are about 62, at least, cyber- dissidents that we know of in China and the most recent, or one of the most recent ones, Shi Tao got 10 years when his Yahoo! account was looked at by the Chinese government.

And they cooperated in that. They should have said, "Absolutely not. We're out of here if you force us to do that," but they didn't say that. They capitulated.

DOBBS: Congressman Chris Smith, we thank you for being here. We'll be following the hearings you'll be conducting with obviously great interest.

SMITH: Thank you, Lou.

DOBBS: And we appreciate your efforts.

SMITH: Appreciate it, thank you.

DOBBS: Thank you. Still ahead here, the rising threat of Iran's nuclear ambitions and its dangerous new president. Is the United Nations really capable of confronting the threat? Ambassador John Bolton will be here next.

And Defense Secretary Donald Rumsfeld emphatically denying that our military is a broken force. We'll be talking with General David Grange about the reality of our military. Stay with us.

(COMMERCIAL BREAK)

DOBBS: The United Nations faces some of the biggest geopolitical challenges in its 60-year history now. The challenges range from the rise of radical Islamist terrorists and governments to the emerging nuclear threats from Iran and North Korea.

But the United Nations itself has never been so weak. The United Nations faces charges of mismanagement, incompetence, and an overall culture of corruption. The U.S. ambassador to the United Nations, John Bolton, is leading the fight for reform at the United Nations. Ambassador Bolton joins us here tonight. Good to have you with us.

JOHN BOLTON, AMBASSADOR TO THE UNITED NATIONS: Glad to be here.

DOBBS: You talk about a culture of corruption. What does that mean if your view?

BOLTON: Well, specifically, I think there are problems of mismanagement, waste, fraud and abuse that we're working very hard to correct. But it's a very deep-seeded culture as we've seen for the oil-for-food scandal in the revelations of the Volcker Commission and even new audits coming out this week that show how deep the problem is.

BOLTON: Well, the audit that just came out looked at procurement and peacekeeping operations, worldwide over a six-year period. The audit covered $1 billion in contracts, and concluded that as much as $300 million of that might have been wasted.

To put that in perspective, the U.S. pays 27 percent of the cost of U.N. peacekeeping, which if the audit is correct and 30 percent was wasted, means the entire U.S. contribution went to waste.

DOBBS: The secretary-general, Kofi Annan, he's the man at the top. He's the man responsible, is he not?

BOLTON: Well, we support the secretary-general in his work. We think it's very important to push ahead on this reform. The undersecretary-general for management, Chris Burnham, an American, spearheading that. He's doing an excellent job. He needs support, which we're trying to give him.

DOBBS: It is at the same time, a period in which the United States, the European Union, indeed the world needs the United Nations to work. How can it work against a backdrop of what appears to be an incompetence, corruption, and a calculated clash of interest and goals on the part of, if you will, the principal members of the United Nations, let alone the regional interests of its other 191 members?

BOLTON: Well, I think you have identified a problem. Paul Volcker, in addition to the corruption issue, called the situation he saw at the U.N. a culture of inaction, where people are satisfied with the status quo. And I think that's something we've got to change. Secretary Rice in September said what we need is a lasting revolution of reform. And that's what we're trying to achieve.

DOBBS: This institution in its best days has never been -- I would say, an atmosphere that would invite revolution or dynamism. Is such a thing possible?

BOLTON: Well, I think the revolution and reform meeting the culture of inaction. It's like the irresistible force meeting the immovable object. We'll have to see what the result is.

DOBBS: Hamas, a landslide victory in the Palestinian elections. The implications for the United States and its implication for a process in which the United Nations has obviously a major interest?

BOLTON: Well, I think the president and the secretary spoke very clearly today. Our position on Hamas has not changed. You can't have one foot in the political world and one foot in the terrorism world. And now the choice goes to them.

But you know, it's another problem here at the U.N., a very sustained biased against the state of Israel. We've made some steps in changing that, but that bias remains.

DOBBS: That bias remains, and you said that one cannot have one foot in terrorism and involved in the constructive process. Yet that is precisely the position that China is in, in its support of Iran and Iran's support of Hamas. So what will be the United States' position in the Middle East, and to what degree are we going to come to terms with the reality that is a Chinese geoeconomic political challenge to the United States?

BOLTON: Well, we've got a sustained interest in convincing the Chinese that our policies of preventing the spread of weapons of mass destruction are policies they should internalize. They should view those as being in their interest.

And we're working on them in the case of Iran's nuclear weapons program, which we think ought to be brought to the Security Council, because it constitutes a threat to international peace and security. The Iranians have been very effective in using their oil and natural gas to persuade China, India and other countries to their side. We have to correct that.

DOBBS: Will it be corrected? Will the matter be brought to the Security Council?

BOLTON: This is something that president and Secretary Rice are both personally very involved with. So we're optimistic.

DOBBS: Ambassador John Bolton, thanks for being here.

BOLTON: Thank you.

DOBBS: Coming up at the top of the hour, "THE SITUATION ROOM" with Wolf Blitzer -- Wolf.

WOLF BLITZER, CNN ANCHOR: Thanks very much, Lou. We'll have all the major news, plus a surprising new twist in the controversy over the book "A Million Little Pieces." That's the book Oprah Winfrey added to her book club and helped make it a best-seller. But find out why Oprah's now had a change of heart.

And Katrina sticker shock. Why is the government paying thousands of dollars a month for a single trailer? We've got the bottom line. All that coming up -- Lou.

DOBBS: Looking forward to it, Wolf. Thank you.

Just ahead here tonight, we'll have more of your thoughts and our poll results. And the Pentagon aggressively denying charges that our military is near the breaking point. General David Grange joins me here next. Stay with us.

(COMMERCIAL BREAK)

DOBBS: I want to give you our poll results right now. Ninety- two percent of you say the failure of U.S. intelligence to anticipate a Hamas victory is yet another indication our intelligence system is in need of further overhaul. We reported to you last night about two new reports showing the wars in Iraq and Afghanistan have left our military almost broken. Defense Secretary Rumsfeld strongly rejected those reports. Joining me now is General David Grange.

General Casey, the number one general in Iraq, says, however, those units are stretched. General Grange, what is the honest truth? And why isn't there agreement?

BRIG. GEN. DAVID GRANGE (RET.), CNN MILITARY ANALYST: Well, the Army is stretched. There's no doubt about it. But when you look at the commitment of the Army, which is carrying the biggest burden, in particular in Iraq right now, you have to look at the future state of the Army in conjunction with the other -- the rest of the armed forces.

DOBBS: General Grange, I have got to stop you.

GRANGE: Yes.

DOBBS: You and I have known each other a long time. We're both straight shooters. The fact is, we've got a general saying they're stretched. We know that our troops are under tremendous pressure there. They're doing a wonderful job. We support our magnificent young men and women.

But the leadership, when it's in a dispute about a Pentagon commission study, what the general in charge is saying, that gives us all great concern that we're getting -- that those young men and women are getting the leadership they deserve.

GRANGE: Lou, they're not in conflict. You have someone saying it's not broken; you have another leader saying they're stretched. They are, in fact, stretched. Can they handle Iraq? Absolutely. There's no doubt in my mind that they will win and be able to handle Iraq for several more years.

The problem is the long term. Can you man a force big enough to handle other things? There's going to be more war, whether it be in Iran, North Korea, or whatever. And so there doesn't -- we need a bigger Army. There's no doubt it. The problem is, how do you man it.

DOBBS: But the secretary of defense is talking about a smaller Army. In fact, he's talking about sizing down the National Guard. And for crying out loud, the National Guard makes up 40 percent of our force -- and the reserves -- in Iraq.

GRANGE: The sizing down of the National Guard is combat units. That's probably a good call. But you do need the National Guard not really to go overseas and augment the active force, but to take care of national security issues at home, like along the border, where you have tunnels that look like something out of North Korea.

DOBBS: And you have a secretary of homeland security who says he's not too concerned about 200 incursions by the Mexican military. What is your reaction? GRANGE: I don't know what he feels about it, but I personally don't like it.

DOBBS: Thank you very much, General David Grange, appreciate it.

Taking a look now at some of your thoughts. Robin in Colorado: "Lou, your piece on Google offering a censored version of its search engine to the communist Chinese government was disappointing and filled with irony."

Armin in Connecticut: "Lou, the labor secretary is the wife of a U.S. senator, and as such does not have any skills. Prerequisites like skills are only for ordinary citizens."

We love hearing your thoughts. Send them to us at loudobbs.com.

Thanks for being with us tonight. Please join us here tomorrow when our guests will include former presidential advisers David Gergen and Ed Rollins. For all of us here, thanks for watching. Good night from New York. "THE SITUATION ROOM" begins right now with Wolf Blitzer -- Wolf.

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